Economic Theories in a Non-Walrasian Tradition (Historical Perspectives on Modern Economics)

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General Equilibrium Theory: Sound and Fury, Signifying Nothing?

But what is money? Where does it come from, and who decides how it is distributed? These questions strike at the core of society. Whatever position your government and context take towards the nature of economics has incredible impact on your daily life and whether your goals come to fruition.

Consequently, the study of economics in recent times is both very important and controversial. But studying economics can be difficult due to the overwhelming changes the subject has undergone. In we were living under the classical gold standard and enjoying perhaps the greatest period of economic development the world had ever seen.

But after the world bludgeoned prosperity in the Great War, much of the previous era's stability came crashing down. Whatever was left of the international gold standard was drowned in blood a second time during World War II, and since then the world has slowly transitioned from a commodity-backed monetary system tied to the U.

What this means is that even the rules of the economic game have radically changed. Several generations ago debt was bad and banks were never to be trusted. Now, avoiding a mortgage and student loans is considered irresponsible. Thirty to forty years ago central bankers saw price stability as the mandate behind their existence.

Now they have a dual mandate which also includes full employment. Most economists will love some of the names on this list and hate others. But regardless of whether you think a particular thinker included here was brilliant or foolish, noble or wicked, you are living with the consequences of their actions. Hopefully understanding this will help us all build a brighter future.

The flow of history is a river that most ride, but every so often a man, through sheer brilliance or force of will, builds a dam and redirects the course of civilization. John Maynard Keynes was such a man. As the most influential economist since , some would argue in history, Keynes' influence is difficult to overstate. He was the son of a successful economist and trafficked in the circles of the intellectual elite from his youth. He would become the leading figure in economics at Cambridge at a time when Cambridge became the leading center of economic study in the world.

It is difficult to appreciate Keynes' impact until one compares what economics was like before him with what exists today. Before Keynes the world used the relatively simple gold standard. Money had a straightforward definition, namely it equaled a certain weight, and economics followed certain basic, common sense principles. Everyone knew that saving money was a good thing, and that it formed the foundation of future investment.

Economic Theories in a Non-Walrasian Tradition - Takashi Negishi - Google Books

Everyone also knew that debt was a dangerous drug that was only to be used in small doses. Friedich August von Hayek, often referred to as F. Hayek, was the foil to Keynes' early rise to prominence. This Austrian-born economist who later settled in Britain had a distinguished career. He earned two doctorates, one in law and the other in political science. Hayek was especially known for his contribution to our knowledge of changing prices and their ramifications. According to Hayek, changes in prices provide information which then allow individuals to adjust their expenditures.

Under his view, changes in price are an essential element in communicating the state of the economy. This provided a powerful argument in defense of free markets, because manipulating markets encouraged consumers and entrepreneurs alike to make poor investment decisions, whereas free markets communicated truths about the actual health of the economy and therefore the future.

Hayek, more so than anyone else in the 20th century, kept the Austrian School in mainstream academic discussions of economics.

Although now largely underappreciated in left-leaning western nations, he has become the chief economist for nations recovering from communism and looking to move in a free market direction. If the 20th century was the time of central banking and Keynesian economics, then Milton Friedman was the most mainstream alternative. Friedman defended the free market and is considered the leading figure behind the Chicago School of Economics.

When Friedman entered economics, Keynesianism dominated the intellectual milieu. But slowly Friedman chipped away at the intellectual orthodoxy. His coauthored volume, Income from Independent Professional Practice , argued that government licensing for doctors artificially raised the price of medicine. A Theory of the Consumption Function , argued that the Keynesian view that households adjust their consumption based on their actual income, as opposed to projected income, was false.

In Capitalism and Freedom , he argued for floating exchange rates, a volunteer army, a negative income tax, education vouchers, a deregulated medical field, and numerous other free market proposals for a general audience. His devastating critique of the Federal Reserve in Monetary History of the United States, so frustrated the Fed that they commissioned a counter history and stopped making their meetings public. To this day, they still keep their meeting minutes private. By the time Friedman was finished, his conservative views had become the new orthodoxy.

He established a place at the table for free market capitalism, and still has many devout followers and ardent enemies. Of the various underlying paradigms in economics, which include historical, behavioral, philosophical, and others, Lawrence Robert Klein is one of the best examples of a mathematical approach to the field. Born in Omaha, Nebraska, this MIT trained economist dedicated his career to developing new macroeconometric computer models.

He created this metric for economies of all macroeconomic sizes, ranging from the national, to the regional, to the world. Unlike so many economists who spend half their time telling you why their predictions did not pan out, Klein's work gained notoriety from a series of early successes. While acquiring his PhD under Paul Samuelson in , Klein made multiple successful predictions concerning the economic context of the world immediately following the Second World War.

What is Walras' Law?

Despite these successes, Klein still left the United States during the post-war Red Scare under McCarthyism due to his brief time in the communist party. Nevertheless, he did eventually return to America and his successes contributed to his winning the John Bates Clark Medal in and the Nobel Prize in These models embody Keynesianism, and are still in use by the Federal Reserve, other major central banks around the world, and the International Monetary Fund.


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The classics never die! Or at least, they never will as long as smart guys like Robert Lucas Jr. Lucas has pushed back Keynes' macroeconomics and fought to revive many traditional views. He is now considered one of the leading figures in neo-classical economics. Not surprisingly, he is very skeptical of government intervention.

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He casts doubt on the Phillips curve, which purports to show that government induced inflation lowers unemployment. He has spent a great deal of time exploring the theory of rational expectations, which begins with certain assumptions about human behavior attempting to act in sensible ways, which maximize utility and build expectations out from these presuppositions.

His work won him the Nobel Prize in Lucas also produced the novel idea that microeconomic behavior should be seen as foundational to macroeconomic behavior. Before Lucas, the Keynesian school saw these two sub-branches of economics as largely independent, but Lucas saw the larger scale model as reducing to the former.

Lucas was also very leery of the dangers of unsystematic monetary policy deceiving market participants into making poor choices. This view obviously emphasizes the dangers of government manipulation of markets, even if well intended. As a whole, Lucas is a prime example of the conservative Chicago School of Economics at work.

Many economists have incorporated prior interest in other fields of study into their analysis of money. Usually this involves math, history, or sociology, but Elinor Ostrom has approached things from a different angle. She has championed New Institutional Economics. Under this approach, one studies the background political context that thereby produces the rules under which commerce operates.